Analysts Mixed On DraftKings Stock Following Strong Second Quarter

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DraftKings stock

Three Wall Street analysts praised DraftKings for its impressive second-quarter results, though two remain unconvinced now is the time to buy the stock.

DraftKings stock initially popped on the unexpected adjusted EBITDA growth reported Aug. 3, but by Monday morning it was giving back those gains and then some.

Then the stock took a tumble Wednesday, falling more than 10% from Tuesday’s closing price in reaction to Penn Entertainment announcing its partnership with ESPN for ESPN Bet. DraftKings and ESPN were reportedly close to a “large new partnership” last October, according to Bloomberg.

Truist upgrades DraftKings to buy

Barry Jonas of Truist upgraded DKNG from hold to buy, with a $44 price target.

The path to significant and sustainable profitability is “clearer” and DraftKings’ “training wheels” are finally off, Jonas said.

The move from hold is based on three points, he said:

Analysts maintain hold rating for DraftKings stock

Both Steve Wieczynski of Stifel and Carlo Santarelli of Deutsche Bank raised their targets on DraftKings based on higher estimates after the second-quarter earnings release but maintained their hold ratings.

Wieczynski raised his target to $32 while Santarelli’s target went to $27.

Wieczynski pointed to the risk of market-share compression as DraftKings continues to rationalize costs including customer acquisition spend. Also more entrants with money to spend will join the US and other competitors could start to catch up on product in explaining his hold rating.

Santarelli said his hold rating is because DraftKings shares remain “healthily valued” right now.

Wieczynski takes stock of DraftKings competition

DraftKings has been winning share with its improved product, which should only continue once NFL betting picks up, Wieczynski said. But he outlined some concerns about “meaningful tech improvements” from a few competitors:

Despite those points, Wieczynski said it will be tough for anyone to take online share from DraftKings and FanDuel without “outsized” marketing and promotions, or impactful product innovation.

Santarelli: legacy state growth to slow

Management emphasized how growth from older states is helping fund the expanding business, but that growth may slow, Santarelli suggested.

The growth has come from a mix of organic growth, increased hold, market share gains and fewer promotions, he said. The industry saw structural hold increases begin in the second half of 2022, which means legacy state growth should “slow materially” in the second half of this year, Santarelli added.

That dip could “influence investor psyche,” Santarelli said.

Updated EBITDA estimates

DraftKings expects its first full year of positive EBITDA to come in 2024:

Jonas($192.8 million)$384.6 million$944.4 millionN/A
Santarelli($167.7 million)$291.0 million$855.2 million$1.013 billion
Wieczynski($200.0 million)$197.1 millionN/AN/A